Smart Money Strategy E-Book

Luke Smith

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 533

Veröffentlichungsjahr: 2023

Beschreibung

Be your own financial planner and create a winning strategy to achieve your money goals Do you want to learn and apply the strategies that experts use to grow and protect wealth? In Smart Money Strategy, popular financial planner Luke Smith comprehensively reveals the principles, methods and tactics that real financial planners use with their clients. Every person's--and every family's--financial journey is different. There's no silver bullet or one-size-fits-all approach. But there are financial strategies that can be applied, no matter what stage you're at in life, to get your money working harder for you with less stress. Smart Money Strategy will help you to define your priorities and create a personalised, actionable plan to achieve your goals. You'll learn effective strategies to manage your income, reduce your debts, and maximise your investment, superannuation and retirement outcomes. Even better, you'll learn how different strategies can be stacked together for maximum benefit. In other words, you'll learn how you can stack the financial odds in your favour! You'll discover: * The basics: 5 truths about money and the 5 foundations you need to get started * The actual strategies used by financial planners when it comes to cash flow, risk assessment, investing, protecting wealth, retirement, and estate planning * How smart planning can minimise fees and taxes on your investments * How to combine your money strategies and put together your own detailed financial plan From adopting a money mindset to protecting your assets, with Smart Money Strategy you'll uncover the secrets to achieving your financial goals. Whether you want a hands-on DIY approach, or you're looking for the essentials you need to talk more confidently with your own financial planner, this book will help you create a tailored plan for growing your wealth.

Leseprobe

Table of Contents

COVER

TITLE PAGE

COPYRIGHT

DEDICATION

ACKNOWLEDGEMENTS

ABOUT THE AUTHOR

HOW TO USE THIS BOOK

INTRODUCTION

Personal financial advice and general advice

PART I: THE FOUNDATIONS

CHAPTER 1: Five Truths about Money

Truth 1: Your education doesn't prepare you for your adult financial life

Truth 2: Your parents probably didn't prepare you for your adult financial life

Truth 3: Most people plan for a tax deduction, not a lifestyle

Truth 4: Nothing's going to change if you don't change

Truth 5: To change, you need to equip yourself — and that's where this book comes in

CHAPTER 2: Your Adult Financial Life Starts and Ends with ‘Why?’

Figuring out your ‘why’

Challenging your ‘why’

Adding a time frame

CHAPTER 3: Setting Strong Foundations

Foundation 1: Respect your earnings

Foundation 2: Pay attention to your spending

Foundation 3: The cost of money is interest

Foundation 4: Be realistic

Foundation 5: Reward yourself

PART II: STRATEGY STACKING

CHAPTER 4: Understanding the Strategy Stacking Philosophy

Understand your ‘why’

Remember the five foundations

Start with the Basic Stack: Budgeting, where earnings meet spending

Use a Risk Assessment Strategy

Stack your strategies appropriately

Assess, execute, review, refine and repeat

CHAPTER 5: Strategy Stacking around Significant Life Events

Redundancy

Marriage and divorce

An unexpected windfall

Trauma and disability

Stacking for the next generation

CHAPTER 6: Getting Started: Assessing Your Starting Position

Know your money truths before you begin

The Strategy Stacker's Starting Position

Working out your starting position

CHAPTER 7: Making a Plan: The Strategy Stacking Calendar

CHAPTER 8: Strategy Stacking Scenarios

Strategy stack: ‘I want to save more and buy a house one day’

Strategy stack: ‘We want to reduce the mortgage and raise our family’

Strategy stack: ‘We want to retire comfortable and debt-free’

Strategy stack: ‘We want to retire, but how do we actually do it?’

A final note on these scenarios

PART III: THE STRATEGIES

CHAPTER 9: The Framing Strategies

The Budget Management Strategy

The Cash Flow Management Strategy

The Debt Reduction Strategy

The Risk Assessment Strategy

CHAPTER 10: The Investment Strategies

The Diversification Strategy

The Dollar Cost Averaging Strategy

The Investment Structure Strategy

The Asset Allocation Strategy

The Asset Selection Strategy

The Investment Selection Strategy

The Franking Credit Strategy

The Fee Reduction Strategy

The Appropriate Tax Strategy

The Gearing Strategy

CHAPTER 11: The Superannuation Strategies

The Super Vehicle Strategy

The Consolidation Strategy

The Contribution Strategies

The Contribution Catch-up Strategy

The Super Splitting Strategy

The Spouse Contribution Strategy

The Government Co-contribution Strategy

The Re-contribution Strategy

The Appropriate Super Fees Strategy

The Appropriate Tax in Super Strategy

The Downsizing Contribution Strategy

The Super Investment Strategies

CHAPTER 12: The Retirement Strategies

The Retirement Readiness Strategy

The Transition to Retirement Strategy

The Retirement Income Vehicles Strategy

The Retirement Investment Strategies

The Appropriate Retirement Fees Strategy

The Appropriate Tax in Retirement Strategy

CHAPTER 13: The Wealth Protection Strategies

The Income Protection Strategy

The Trauma Protection Strategy

The Total and Permanent Disability Protection Strategy

The Life Protection Strategy

The Key Person Protection Strategy

CHAPTER 14: The Estate Planning Strategies

The Last Will and Testament Strategy

The Testamentary Trust Strategy

The Power of Attorney Strategy

The Superannuation Nomination Strategy and the Reversionary Pension Strategy

PART IV: PUTTING YOUR FINANCIAL PLAN INTO ACTION

CHAPTER 15: Why Seek Personal Financial Advice?

You don't know what you don't know

Things change — you'll never keep up with the latest options

Asking family and friends for financial advice is a risky idea

Trying to go it alone is just too difficult

Advice is not just for the ultra-rich

You've got goals you want to achieve

You don't want financial stress

You're looking for a better way to manage your money

You're facing a redundancy

You want certainty when you retire

You've had an unexpected windfall

You've gone as far as you can by yourself

It's all too complicated!

You think you're paying too much tax

You want to stack strategies in your favour for a better life

CHAPTER 16: What to Expect from the Financial Planning Process

The financial planning process in six steps

The financial plan: What should it cover?

ENDINGS AND NEW BEGINNINGS

INDEX

END USER LICENSE AGREEMENT

List of Tables

Chapter 4

Table 4.1: Investment rates of return

Chapter 6

Table 6.1: Your income

Table 6.2: Your investments

Table 6.3: Your superannuation

Table 6.4: Your personal insurance

Table 6.5: Your assets

Table 6.6: Your liabilities

Table 6.7: Your expenses

Chapter 8

Table 8.1: Calculating James's take-home pay

Table 8.2: Savings comparison

Table 8.3: Debt comparison

Table 8.4: Saving for a home deposit

Table 8.5: Calculating James and Trish's take-home pay

Table 8.6: Debt comparison

Table 8.7: Savings comparison (James)

Table 8.8: Savings comparison (Trish)

Table 8.9: Savings and debt reduction comparison

Table 8.10: Wealth protection comparison

Table 8.11: Estate planning comparison

Table 8.12: Calculating James and Trish's take-home pay

Table 8.13: Debt comparison

Table 8.14: Projection (estimate) of future superannuation

Table 8.15: Pre-retirement comparison

Table 8.16: James and Trish's income when James reaches retirement age

Chapter 9

Table 9.1: Planning your spending

Table 9.2: Repayment options for a TV bought using a credit card

Table 9.3: Repayment options for a house

Chapter 10

Table 10.1: The changing share price over six months

Table 10.2: Example asset types

Table 10.3: Investment fees

Table 10.4: Tax planning strategies

Table 10.5: Chris's share portfolio with different gearing options

Chapter 11

Table 11.1: Comparing contribution types

Table 11.2: Timing your Contribution Strategies

Table 11.3: Super fees for different types of super fund structure

Table 11.4: Taxes on superannuation contributions (figures correct at the tim...

Table 11.5: Tax rates for different types of super contributions (figures cor...

Table 11.6: Tax on investment earnings within super (figures correct at the t...

Table 11.7: Tax on super death benefits (figures correct at the time of writi...

Table 11.8: Investment Strategies in superannuation

Chapter 12

Table 12.1: Your preservation age

Table 12.2: Minimum withdrawal amounts

Table 12.3: Investment Strategies in retirement

Table 12.4: Typical retirement fees

Table 12.5: Taxes on retirement vehicles (figures correct at the time of writ...

Chapter 16

Table 16.1: The elements of a financial plan

List of Illustrations

Chapter 10

Figure 10.1: Example asset allocations for investment portfolios (including ...

Chapter 16

Figure 16.1: The six-step financial planning process

Guide

Cover

Table of Contents

Title Page

Copyright

Dedication

Acknowledgements

About The Author

How to Use This Book

Introduction

Begin Reading

Endings and New Beginnings

Index

End User License Agreement

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SMART MONEY STRATEGY

YOUR ULTIMATE GUIDE TO FINANCIAL PLANNING

LUKE SMITH

First published in 2023 by John Wiley & Sons Australia, LtdLevel 4, 600 Bourke St, Melbourne, Victoria 3000, Australia

© John Wiley & Sons Australia, Ltd 2023

The moral rights of the author have been asserted

ISBN: 978-1-394-17694-6

All rights reserved. Except as permitted under the Australian Copyright Act 1968 (for example, a fair dealing for the purposes of study, research, criticism or review), no part of this book may be reproduced, stored in a retrieval system, communicated or transmitted in any form or by any means without prior written permission. All inquiries should be made to the publisher at the address above.

Cover design by Wiley

DisclaimerThe material in this publication is of the nature of general comment only, and does not represent professional advice. It is not intended to provide specific guidance for particular circumstances and it should not be relied on as the basis for any decision to take action or not take action on any matter which it covers. Readers should obtain professional advice where appropriate, before making any such decision. To the maximum extent permitted by law, the author and publisher disclaim all responsibility and liability to any person, arising directly or indirectly from any person taking or not taking action based on the information in this publication.

To my wife Peggy and to my daughters.You remind me daily what's most important,and without your support, I couldn't do what I do.

ACKNOWLEDGEMENTS

I would like to acknowledge all those throughout my career who I have learned from and those who have inspired and encouraged me to start my own financial planning business — one that reflects my values around being easy to understand, being reliable and being trusted to look after my clients’ personal financial planning advice needs. I also would like to thank my support staff who assist me every day in this endeavour. Finally, I thank my friend Peter Bowman for his ongoing support while I was writing this book. Without his involvement, the ideas in this book would have remained chatter over a coffee rather than something that people could benefit from in the future.

ABOUT THE AUTHOR

Luke Smith is The Strategy Stacker.

Luke is also a financial planner and the Director of Envision Financial, a financial planning advice business he founded in 2016 in Canberra, Australia.

Luke has been advising clients since 2004, working with individuals, couples, families, business owners and government employees to help them understand and make the most of their financial options.

Luke also appears weekly on local radio station 2CC Talking Canberra to discuss financial planning matters. A podcast of the show is available on Apple Podcasts, Spotify and other podcast platforms: search for ‘The Strategy Stacker — Luke Talks Money’ to find each episode.

For years, Luke has witnessed endless changes to investment and superannuation legislation, changes to the way people are taxed. There has also been changes to the rules around how people retire, which has caused confusion and uncertainty. In an age where life is meant to be easier, Luke believes that financial complexity is instead on the rise. He sees through the lives of his own clients. There's complexity around all aspects of money and when coupled with a distrust of banks and other financial institutions, it creates a challenging environment for people to move forward.

The gap in financial education is on show right now as we become a society of haves and have-nots and Luke believes the key to closing the gap is financial planning education. While there are some general books about budgeting, saving and investing, there's been nothing available to genuinely educate and inform Australians around the real financial strategies that financial planners use with their clients and how to put them together. This is the reason Luke wrote Smart Money Strategy. His down-to-earth approach breaks down complex financial planning strategies into everyday language and provides insights into how to put strategies together. The book can also be used to have more productive conversations with a financial planner, if you decide to seek personal financial advice.

To find out more and access additional smart money strategy tools, please visit thestrategystacker.com.au.

HOW TO USE THIS BOOK

As part of my ongoing philosophy to educate first and financial plan second, I have always had the belief that I have a duty to inform and educate my clients. This book is an extension of my financial planning firm's ongoing education program radio show on 2CC in Canberra (that was created to try and demystify industry-specific terminology and jargon, and to explain key financial concepts in plain English), and it is designed to give you the background to some key financial strategies — considering when and how to use them, and how ‘stacking’ these strategies can accelerate the probability of reaching your goals and the objectives of your ‘why’ — hopefully building in some tax deductions along the journey.

This book is designed to answer another question I get asked all the time: ‘Where do you go to learn this stuff, because we didn't get any of it in school?’ Another regular message in the Q&A box in our office is: ‘Once your working life starts, you just don't have time to figure it out by yourself.’ By sharing the information in this book, I hope that I can help you find the answers to the questions you have about money and personal finance, as well as provide a starting point for you to create a financial plan that works for you. I have designed this book for singles, couples, families and the young at heart. The strategies I share here can be applied no matter how old or young you are, and you will be surprised at how well some strategies stack with others, regardless of your goals and your starting position.

It is important to keep in mind that your financial journey is your own. It's not the same as your next-door neighbour, your work colleague, your brother or any another family member. Like most things in life, we all have different priorities and strive to achieve different things in different areas of our life. With this in mind, I have collated the key strategies in this book for you to consider, understand, apply and review along your journey. Not everything will be applicable to you, but a change in financial behaviour is a positive not a negative, and an informed change in your behaviour that is in line with your ‘why’ can be very powerful indeed.

Most importantly, this book is designed to be used with a qualified financial planner should you wish to seek personal advice. I cannot understand your specific personal situation or your life and financial goals through writing a book, so the information I provide here is ‘general advice’. I can however hope to open your mind to the many useful financial planning strategies that are available and encourage you to seek personal financial advice for your own situation. I also want to share with you what's involved in the financial planning process and what goes into a personal financial plan (covered in Part IV of this book). I hope it alleviates any fear or apprehension you might have about seeking personal advice. You don't know what you don't know!

To the mums, dads, aunts, uncles, nanas and grandpas out there, I hope that you can take some useful strategies from this book and use them to help educate the next generation when it comes to saving, spending and other good behaviours that will stand them in good stead as they grow into adulthood. I honestly believe that the sooner they start learning about how money works — and even start to understand the smart money strategies in this book — the more confident and happy their financial lives will be. By the end of this book, I hope we'll agree on the value of sharing this information with the next generation too.

Wishing you strategy stacking success!

INTRODUCTION

I've been in the financial services industry for over 20 years, and it has always concerned me that I hear similar comments about money from a range of clients of all different ages: ‘I wish I had known that five years ago’ or ‘I had no idea you could do that’ (often followed by, ‘I thought you could only do it this way’). When our finances are such a key component of our lives, it can be very sad to realise that so many people have these gaps in their financial knowledge.

Money is often a driver for some of the big decisions in our adult lives. New clients often end up in my office after taking a leap of faith, normally via a referral from an existing happy client. I spend some time with them talking through where they're at in their lives (including with their financial life), what they would like to achieve, and how we can take some financial steps together to keep them moving in the right direction or get them to where they want to go. It's especially important that I identify the strategies and options that they have. I also need to help my clients understand why the strategies I present to them are valuable, so they deepen their understanding about how smart money strategies can work for them.

I was brought up to hate waste — be it a waste of time, effort, money, talent, opportunity or knowledge. Hopefully by working your way through this book you can limit the times you say, ‘I wish I had’ and ‘If only I had known’, and increase the times you can say, ‘Doing X has saved me Y’ or ‘Now we can do Z’ in the future. There is no magic bullet and nothing about finance comes without risk, but over your work and retirement life there is always going to be give and take, and you can work with this flexibility: spend a little more now, work a little harder (or longer) later; save a little more now, work a little less later; and every other possible combination you can imagine. Along the way, you may find that making informed decisions about your money can help you save, build and grow what you are working with — affectionately known as your resources.

When you think about your resources, you probably think about the money you have in the bank or your super account. You might also think about the investments you hold — be they shares, property or some other kind of asset. What you also need to think about as a resource is you.

Your ability to earn an income is your most valuable resource. Your ability to manage your money is your second most valuable resource. Most people don't think like this. They forget about themselves and they dismiss their ability to make decisions for the betterment of their financial lives — which is often where a financial planner comes in.

A financial planner is a qualified professional who can help you identify your goals, understand financial strategies and options, create a personal financial plan and work with you towards achieving your goals. In short, a financial planner can provide you with personal financial advice.

It's also important to note that in Australia the terms ‘financial planner’ and ‘financial adviser’ are restricted terms by the Corporations Act 2001. This means that you can't just decide one day to call yourself a financial planner. To use either job title, there are certain legal requirements you need to meet, including being authorised by the Australian Securities and Investments Commission (ASIC). The Financial Advisers Register (managed by ASIC), which is published on the Moneysmart website, allows consumers to check their financial planner is authorised to provide advice and find out some more information about them.

Smart Money Strategy is designed to help you build your own knowledge and understanding about how financial planning strategies work. The book also provides a great platform for you to be better equipped when you walk into a financial planning meeting, should you decide to seek personal advice. By reading this book, it's my sincere hope that you can have more productive and engaging conversations with your financial planner to more effectively and efficiently achieve your goals.

Personal financial advice and general advice

It surprises me that within this age of information people still don't understand the value of personal financial planning advice. There's a big difference between general advice and personal financial advice when it comes to your financial planning, yet a recent study commissioned by ASIC found that many Australians couldn't tell the difference between general advice and personal financial advice.

So how can you tell the difference between the two?

The key difference comes down to whether a financial planner has considered your personal financial objectives, situation or needs. If no one has asked you about those things, the advice you are receiving is general advice. General advice is often seen in the media, within education tools and forums and in books like this. General advice provides information only, which may or may not be applicable to you.

Personal financial advice, on the other hand, is about you, and you alone. For example, you might be seeking personal financial advice for specific life issues, such as changes to your work situation (including a new job, redundancy or retirement), starting or selling a business, getting married or divorced, or having children. Almost everything we do in life has a financial consequence, so there are lots of reasons to seek personal financial advice.

At the heart of it, and in my view, personal financial advice involves:

Understanding your starting position

Exploring your ‘why’

Understanding the options specifically available to you

Helping you implement healthier financial behaviours

Creating a financial plan to help you meet your goals, and working with you to assess your progress towards those goals and recommending adjustments as may be required.

Personal financial advice is also about working with you over time to assess your progress towards your goals and changing and sustaining your financial plan as your life changes.

As I haven't asked you about your objectives, situation or needs, the advice in this book can't be considered personal financial advice as I don't understand anything about your personal financial situation and I haven't provided you with a financial plan that will help you achieve your goals. However, what I can do is give you general advice about how strategies and products work and how they can be used in different general situations. I find that even with my own clients, it often helps to explain things generally before exploring and assessing how a strategy might work within the context of their own situation and personal financial plans.

Let's consider these points about personal financial advice in more detail from the perspective of building your financial understanding.

It helps you understand your starting position

On any journey you take, it helps to know where you're starting from. In Chapter 6, I offer you a series of activities to help you explore and understand your own financial starting position. It's a really important step to know where you're at as it guides what you do next.

It helps you explore your own ‘why’

A financial planner can help you by asking questions and acting as a sounding board to help you define your ‘why’ — the needs, wants and ambitions that determine how you might best structure your finances to achieve your goals.

If you've never thought about your own ‘why’, it might be hard to define what it means to you. You might be so busy with work or your family that you've never stopped to think about it. But knowing your ‘why’ gives you information and the motivation you need to create achievable goals for you and your family over time. Thinking about where you need to go will keep you engaged and motivated because even if it involves some sacrifices along the way, you know it will be well worth it in the end. Chapter 2 explores defining your ‘why’ in more detail.

A financial planner can help you define your goals and make them specific and measurable. A financial planner can also help you assess the goals you already have to ensure they're realistic and achievable.

It helps you build your knowledge so you can assess your strategy options

Although I may have never met you, the fact that you're reading this book tells me you're looking to build your knowledge and you're looking to create better financial outcomes for yourself and perhaps your family. Personal financial advice can help you identify and navigate the strategy options that are available and which ones are suitable specifically for you, and a financial planner can assist you along the way. You'll also learn a lot more about money than you probably ever have before and understand the risks that are involved too. Part III of this book introduces you to the key strategies you can ‘stack’ in different ways to meet your goals.

It helps you implement new behaviours

Knowledge is great, but good financial behaviour also matters in determining the outcomes that you achieve. You need to operate within a ‘circle of safety’ — that is, have good everyday financial behaviours. To some, this may sound boring — if that's you, please feel free to spice up your life through food, music, movies, a relationship or something else more exciting than money. The key takeaway here is that if your financial life is boring, you're probably on track in many regards!

Behaviour changes you can make to improve your financial fitness include:

Being mindful of the foundations of money outlined in this book as you spend

Introducing new behaviours to reduce debt, save or invest as a result of understanding your strategy options

Implementing new behaviours as a result of building your own strategy stacks, and getting a series of strategies to work in your favour

Being consistent. Consistency is vital to reaching your goals, while one-off, speculative opportunities are usually surpassed by long-term hard work in the end.

A financial planner can coach you along the way, helping you reinforce the good behaviours and identify the bad behaviours you may need to rethink. Chapter 3 encourages you to set some strong foundations for your financial life, so you give yourself the best chance of success. Make an agreement with yourself to put them into place before you start strategy stacking.

It helps you achieve your personal goals

Understanding your finances is not just about learning more and changing your behaviours, it's also about giving you the best possibility to achieve your desired outcomes, such as saving for a first home, reducing the mortgage and raising a family, or retiring comfortably and debt-free. Timing is also important, so consider your goals in terms of:

Things you want to do right now (near-term goals)

Things you want to do in one to two years (short-term goals)

Things you want to do in three to five years (medium-term goals)

Things you want to do in more than five years (long-term goals).

It's important to time frame your goals with the resources you have to work with. If you don't place time frames on the outcome you're seeking, it may actually change your goals and the strategies you use to achieve them.

You may be looking for an emotional outcome from your personal goals too, such as reducing financial stress or building financial confidence. If you've never had a financial plan in place, then you might never have really experienced a feeling of certainty or confidence in your financial life.

Ultimately, the value of any personal financial planning advice — as well as any general advice you explore to increase your financial understanding, such as by reading this book — that you receive will be determined by what you want to get out of it and what goals you set. It's also important to remember that it's not just about the goals and strategies — it's also about your own financial behaviours. A financial planner can't be present 24/7 — and you probably wouldn't want them to be!

PART ITHE FOUNDATIONS

I know some readers will be keen to get to the financial planning strategies that appear later in this book and start stacking the odds in their favour. If that's you, cool your jets! I genuinely ask you to pause for a moment — it's not the right place to start. Just like building a house, and especially a stable structure that will do what it is meant to do over the medium and long term, you've got to spend some time looking at the foundations that you plan to build upon.

I think the wise place to start is to look at some truths about money. I want to encourage you to think about your attitudes to money over the years as well as your relationship with it. For many people, money is transactional — it comes and goes and comes again until the next lot of expenses come along. Reflection here may help us see what we might need to change or challenge if we really want to move forward — not just with money, but in many aspects of our lives. It might also influence what you see as important within your own financial life.

I also encourage you to create what I call your ‘why’, which are your short-, medium- and long-term goals. Without goals, we often flounder about, not sure where we're going. Sometimes we don't make the decisions that have our best medium- and long-term interests in mind. This is often the case when goals aren't set or we haven't given ourselves the opportunity to set them.

Taking the time to set strong foundations is essential, especially if you genuinely want to give yourself the best chance of success, and I conclude this part by establishing what I think are the five foundations you need to build your strategy stack.

CHAPTER 1Five Truths about Money

Before we start talking strategy, I'd like to ask you to explore your own attitudes towards, and your relationship with, money.

Consider the following questions:

When did you start learning about money?

Has money ever stressed you — or someone you know — out?

Has your relationship with money ever felt like a love-hate relationship?

How have you been influenced by others in your own relationship with money?

Are you prepared to change how you manage your money?

Are you willing to equip yourself with knowledge or seek financial planning advice to have a better relationship with money?

A big issue people have to overcome in their relationship with money relates to the preconceived ideas and assumptions they bring to the relationship. Many of these beliefs are not based on fact, and these unhelpful beliefs can impact upon your decision-making in a negative way. For example, many people don't understand what happens to their super at retirement. Despite what some people believe, you don't have to withdraw all the money from your super account and close it; in fact, doing so might have negative retirement consequences.

The truth is that many people haven't taken the time to think about the relationship they have with money and how their financial knowledge and personal biases impact what they do with their money. So, let's take a few moments to look at five truths about money — and how they might be impacting your financial life right now.

Truth 1: Your education doesn't prepare you for your adult financial life

When most of us think about our school days, we probably think of our friends, the subjects we liked, that one teacher who actually cared — and maybe, for some of us, how we wanted to get out of there and into the adult world.

Sadly, much of our childhood and teen education doesn't prepare us for adult life, particularly our adult financial life. The problem is more than mathematics: addition, subtraction, multiplication, division and a reasonable understanding of percentages is as much as we actually need to make sense of our finances. The problem is more about life issues.

Here are just a few issues in your adult financial life that you probably wish you'd had the answers to before you left education:

How do I budget?

How much can I afford to save?

How quickly can I pay off my home loan?

How much superannuation do I need to live a comfortable retirement?

How do I make the most of my financial options?

These aren't unreasonable questions; they deserve more time within school classrooms — not to place undue emphasis on the love of money or getting more than you need, but to give young people the opportunity to live their best lives, without the consequences of financial stress in adulthood. Think how much happier we would all be without financial stress!

Improving financial literacy for adult life in schools is my challenge to education bureaucrats around the country. Perhaps students would benefit from taking a new subject called ‘Money and Life’. Perhaps we could have fewer elective classes and more of these kinds of practical classes. However, it seems that as a society, we're more interested in equipping our kids with mobile phones so they can call us if anything goes wrong than equipping them with the knowledge to manage their adult lives. I don't understand why.

Truth 2: Your parents probably didn't prepare you for your adult financial life

If we didn't learn about money at school, then maybe our parents taught us about money instead. Right? Well, that's not the case for the overwhelming majority of Australians.

Some of us may have received pocket money when we were growing up. Unlike many of the kids of today, however, we might have had to do something to earn it. When I was a kid, I had to make my bed, take the rubbish out, and feed and walk the dog to earn my $5 a week. I can't even remember what I spent it on: probably $5 worth of mixed lollies or trading cards from the corner store. I also had a money box (though after the lollies and trading cards, I may not have had much left to put in there). Earning pocket money and adding change to my money box would have been the extent of the knowledge about money my parents gave me to prepare me for my adult financial life.

Our culture teaches us that we hide money conversations: ‘That's private; we don't want anyone else knowing what we earn or what we spend’; ‘It's nobody else's business.’ If someone wants to know about what you do with your money, the perception is they're being invasive and rude — even if it's family. Unsurprisingly, the way we teach our kids about money is probably the result of the attitudes we were taught about money — so our grandparents didn't teach our parents much about money, our parents never taught us much about money … and it's likely we'll continue the same behaviour with our own kids if we don't make the decision to break this cycle.

Considering your parents’ finances when you were growing up, did you know:

How your parents managed their own budget?

How much they could afford to save?

How quickly they were paying off their home loan?

How much superannuation they needed to live a comfortable retirement?

How they made the most of their financial options?

If you can say yes to any of these, I'll be quite surprised. If you're a parent yourself, you might think, ‘I'm not sure I'm ready to share that with my kids.’ It's not something you'd share with a five-year-old, but you might explain your financial strategies to a 15-year-old — even just the concepts, if not the specifics — which is 100 times more than you may have got from your own parents. And your kids are probably going to inherit your money one day anyway, so why not share a little more information to help them manage it wisely?

We can't blame our parents for not preparing us for our adult financial lives — we can't change the past, and they were probably doing the best with what they had. (As the father of two children, I wonder how good a job I'm doing at times!) However, we can create a better future.

If you work for your money, then you owe it to yourself to make the most of understanding your options and take control to achieve what you want. So, put your efforts there. Thank your parents for what they did and know you can and will do even better.

Truth 3: Most people plan for a tax deduction, not a lifestyle

‘Hello, accountant.’ Every year, we reach a time when we reluctantly gather our receipts and expenses out of a file or shoe box and take them to an accountant, along with the payment summary from our employer. Most of us, myself included, use the services of an accountant. (Of course, if you've got the time or the interest, you might do it yourself.)

For a good segment of working adults, their accountant is the person that sorts all the tax stuff out. Every year, like many, you probably ask the same question of your accountant: ‘How can I pay less tax?’

But accountants are not financial planners; the role of an accountant is to help you pay your taxes rather than help you work towards your financial goals. By law, they're not allowed to provide you with personal financial planning advice because they may not be qualified or licensed to do so. And I am not being critical of accountants here — most, including my own, do a great job at completing Australia's tax returns. However, it's important to acknowledge the difference between accountants and financial planners; after all, you don't go to a plumber if you need electrical work done.

Over the years, you may have received some useful advice from accountants about how you might improve your financial situation, such as by negatively gearing a property investment so you can claim the interest on the loan as a tax deduction. But this advice only gives you a tax deduction, it doesn't tell you what to do with the money — it doesn't help you plan for your lifestyle, or the bigger picture. How do you choose the best option for your money, while saving for the life you want to live in retirement? You probably won't know all your options if you never receive proper financial advice.

Getting more tax deductions doesn't address the big financial picture. It doesn't help you get where you're going or tell you what you need to do across a variety of areas to get there.

If your accountant is out of ideas when it comes to getting more tax deductions, then perhaps it's time to think about the bigger picture. I hope this book provides a good place to start!

Truth 4: Nothing's going to change if you don't change

Humans are creatures of habit. It's hard to change. But it's easier to change when you've got a goal that you believe is achievable, a goal that excites you and gives you what you want, and a goal that won't cause you too much pain.

The reality is most adults have lost the ability to step outside their day-to-day lives, think about their daydreams — the things they'd rather be doing with their lives — and create plans to help them get there.

My father taught me to hate waste. He hated waste in all its forms, not just wasting money. As an elite soccer coach, he also hated seeing wasted talent. This was most prominent for him when some young players would just do the bare minimum to get by. They didn't commit to extra training or learning and, as a result, never fulfilled their total potential. He also really hated people wasting their time. I think waste of money, talent and time also apply to people not living their ideal lives. Today, this is part of my own core values and why I believe change is so important if you really want to get ahead in your own life.

Why is it so difficult to change? Excuses might include:

I don't have time.

I don't know where to start.

I don't have the knowledge.

I don't know how to keep motivated.

I don't know if it is possible to live my ideal life.

If any of these excuses apply to you, then I encourage you to challenge the things that are holding you back and preventing you from making positive changes in your life. Remember, changes can be big or small; even small changes in behaviour can make a huge difference over time.

If you don't change, no one is going to change for you. Do you think the bank wants to help you pay off that credit card or mortgage faster? Do you think that your super fund cares enough to help you work out what you need to do to reach your retirement goal? Do you think that all the people who send you bills care about your financial wellbeing — or do they just want to be paid? If it helps you to get angry enough to make a change, then get angry! Sometimes pain is the motivator of change if your dreams aren't enough.

As an adult, taking control of your financial life is your own responsibility. If you don't take steps to set yourself some targets, no one is going to do it for you. Don't you think you owe it to yourself to try and live your ideal life? I don't know for sure, but I'm guessing no one ever laid on their death bed saying, ‘I wish I had lived less of my ideal life.’

Truth 5: To change, you need to equip yourself — and that's where this book comes in

Only a few generations ago, the concept of money was very simple compared to what it is today. Back then, you got paid in cash and you spent your money as cash. You might not have even had a bank account. And the saying about hiding your money under the bed may have been your reality.

Just a generation ago, we were introduced to credit cards that made getting into debt so easy, while charging interest at high rates. Regardless of this, most adult Australians have them and use them weekly. Credit card interest rates remain excessively high, at around 10–15 times higher than the cash rate set by the reserve bank (depending on the card you have).

Less than a generation ago, superannuation became compulsory. Super is the biggest asset most people own outside their family home, and yet most people don't know how to make the most of it or what their exit price (the value of their super balance) needs to be in order to live the retirement that they want. And despite super being compulsory, you have probably never been formally educated about it and your super fund is unlikely to have done a great job in helping you get the most out of it, either. The industry has grown to hold over $2.8 trillion, and many super product providers have grown fat and lazy with their members’ money.

And today, in our kids’ generation, money has become virtually invisible. New technologies that allow you to pay using your smartphone, watch or a tap of your card do away with notes and coins altogether. How will kids learn about money when it isn't even a real, tangible thing anymore?

Without a doubt, most people's knowledge in relation to money, financial strategies and their financial options isn't where it should be in order to make good decisions about their financial lives.

You need to equip yourself with the tools and knowledge to achieve your financial goals. That's where I hope ‘strategy stacking’ can help you. Even if you take just a few ideas from this book, it's better to do something than nothing.

I will share with you a range of financial planning strategies and show you how they can be stacked together to increase the likelihood of achieving your goals. There are no get-rich-quick schemes here; if you're looking to make a quick dollar, then this book isn't right for you. In fact, I'd ask you to stop reading the book right now if that sounds like you because there's nothing for you here. This is a book about strategic financial planning for the medium to long term, with actions you can take right now.

I realise that some readers who are confident ‘do it yourself’ investors will use this book as general advice and information to help them with their own decision-making. Some people however might use this book with a financial planner to test and explore the options and strategies available to them.

If you don't have time to learn the strategies yourself, I recommend you work with a qualified, experienced and appropriately licensed financial planner. They can provide you with the information you need to understand your options and provide strategies to help you reach your goals. That's what I do with my clients every workday.

* * *

The five truths about money might be challenging to some readers, and that's okay. My clients often share their regret at not realising what they didn't know about money, and how much time they lost when they could have been making better financial planning decisions.

It's particularly hard for those approaching retirement — many have lost decades of opportunities to boost their super or take other financial actions that could have made a big difference to the outcomes they could have achieved. If that sounds like you, don't be disheartened. You still have options available, you just may not have the ideal amount of time on your side. I ask you not to regret the time you've lost; in fact, turn it into a positive and share your newfound knowledge with others, or buy a copy of this book for a friend or a younger person in your life. Tell them you want them to have a good financial life when you gift it to them.

Taking the time to set up your own financial plan for success pays dividends — and I'm not just talking about money from shares. Having a financial plan provides you with increased confidence and actionable steps you can take to put yourself in a better financial position.

CHAPTER 2Your Adult Financial Life Starts and Ends with ‘Why?’

Why?

It's the most challenging of all the questions we get in life. It requires us to provide more information and, in some cases, justify ourselves. In that context, being asked ‘Why?’ can sometimes be very confronting.

Let's give some ‘why’ questions a go:

Why didn't you get up an hour earlier this morning and hit the gym?

Why were you late to work?

Why did you eat that second piece of cheesecake?

Why do I keep asking these annoying questions?

Well, sorry to keep asking, but when it comes to your lifestyle goals and your financial wellbeing, it starts and ends with your ‘why’.

Why is this, you might ask? That's a question that's easier to answer. It's because:

Only you can answer it

Only you can hold yourself accountable.

Your ‘why’ really reflects what your own needs, wants and future ambitions are. Sounds simple, right? Well, not really in my experience. We're complicated human beings and our decisions are based on lots of things, not necessarily all of them focused on our financial wellbeing. It's worth the effort to spend some time here on your own ‘why’. Your ‘why’ will help you focus your attention on setting your goals and determining what your financial priorities are.

Figuring out your ‘why’

A financial planner can assist you if you're open to seeking advice, but not even they can tell you what your ‘why’ is.

I have spent hundreds of hours helping my clients to figure out their own ‘why’. I often start by asking them why they have the investments they have. Typically, I get one of four reasons:

The rational reason:

‘I thought it was a good investment providing a good return.’ This investment decision appears to be based on

logic

.

The social/emotional reason:

‘My friend/relative was doing it, so I thought I'd do it too.’ This investment decision appears to be based on

feelings

.

The process reason:

‘It seemed like the next step to take.’ This investment decision appears to be based on a

process

.

The creative reason:

‘I had an idea and that's what I did.’ This investment reason appears to be based on something that

inspired

them.

These are all reasonable answers. But the reality is not one of them really answered the question ‘Why?’

Finding your ‘why’ is really about uncovering what's most important to you and the reasons behind it. It's about goal setting. Furthermore, it's about goal setting that has your honest needs, wants and desires at heart.

We're all different, so everyone's ‘why’ is going to be different. I've had clients tell me, in confidence, about all kinds of goals. Many of them have common themes and connect to important aspects of my clients' lives. Yet, for most of my clients, my question of ‘why’ is the first time they have stopped and thought about what matters most to them.

It's also essential to note that the ‘why’ should never be about money itself. That's because money isn't a real end within itself, in my opinion. Money is only ever a facilitator to doing what you actually want to do.

I can't tell you what your ‘why’ is, but hopefully I can inspire you to define it.

So, what is your own ‘why’ about? As a starting point, might it be:

Comfortably meeting your day-to-day physical needs?

Providing you with financial security, now and in the future?

Being with the people you want to be with?

Following an ambition you have, such as a career, activity or hobby?

Solving a problem or challenge?

Maybe one of these suggestions has helped to lead you towards identifying your ‘why’, or perhaps it is something else I haven't covered here, but hopefully this list has given you a place to start. Remember, only you can answer your ‘why’.

As an activity, by yourself or with your partner, I encourage you to write a list of your true needs, wants and desires. Together, these things represent your ‘why’. Stick your list on the fridge for a month and think about it. Modify things. Cross things out. Add new things that you think of until you feel that your list is complete.

Challenging your ‘why’

It's also helpful to challenge the things on your list to make sure they deserve to be there. How might you do this? One way is to imagine you're at the end of your life, thinking over all you have achieved. If you achieve everything on your list, do you think you would be happy? If not, what's missing? Are there some things on the list that really don't belong there? Might there be better pursuits you could be spending your valuable and finite time on?

Understanding your ‘why’ is the most important step of your adult financial life. By no means is it easy. We all have hopes and dreams. Equally, we all have fears. Navigating your way through these emotions isn't always a walk in the park, and finding your ‘why’ requires real effort.

When you find it though, for the first time in your adult financial life you'll be content. For the first time in your life, you'll have concrete reasons for getting out of bed and doing what you do. You'll be living your life with purpose.

Adding a time frame

When you know what your ‘why’ is, you then need to apply a time frame. Adding a time frame creates a motivation for you to get moving on your ‘why’.

I encourage you to break down your ‘why’ into short-term, medium-term and long-term goals:

Short-term goals:

What needs to be completed in one to two years.

Medium-term goals:

What needs to be completed in three to five years.

Long-term goals:

What needs to be completed in six to 10+ years.

When you think about your ‘why’ in terms of time, make sure you pick an appropriate time frame for each of your goals. For example:

You want to pay down your $4 000 credit card debit — and you realise you can clear this over the next 12 months.

You want to save $20 000 to put towards upgrading your car — and you realise you can afford to do this over the next four years (saving $5 000 a year).

You want to retire at age 65 with $750 000 in super — and you realise you can make contributions to super above what your employer contributes to help you achieve that outcome in 35 years’ time by doing some retirement balance projections.

Of course, you can add as many short-, medium- and long-term goals to help you reach your ‘why’ as you need to. It's your ‘why’, after all, and financial planning at its core is about helping people achieve their own ‘why’. This book gives you the tools you need to make these goals achievable, whatever your goal.

So, add a time frame to your goals too before you stick it on the fridge. It's a great reminder of long-term planning and helps motivate you beyond thinking about the short-term goals. There's a bigger picture at stake now, and you've got something concrete, meaningful and inspiring to work towards.

CHAPTER 3Setting Strong Foundations

Now that you've established your own ‘why’, there are five foundational principles you need to think about if you're serious about achieving your goals and making changes that will impact your life.

The five foundations are:

Foundation 1:

Respect your earnings

Foundation 2:

Pay attention to your spending

Foundation 3:

The cost of money is interest

Foundation 4:

Be realistic

Foundation 5:

Reward yourself.

Just like footings underneath a house, the strength of these foundations will determine how well your ‘why’ holds up once you start to do what you need to do to achieve your goals.

In this chapter, we take a closer look at these foundations.

Foundation 1: Respect your earnings

For most of us, earnings (or income) are what we receive in return for going to work. Earnings also includes money you receive from other sources, such as dividends from shares, interest on term deposits, rent from a property investment or the income earned from any other investments you have.

You might think that bank interest or those share dividends aren't important, given they don't add much to your pocket. However, if you have $75 000 in savings and you earn 4 per cent on that over a year, that's a $3000 return!

Over two years, it's $6000; over three years, it's $9000; over four years, it's $12 000; over five years, it's $15 000.

If you were to reinvest the earnings each year, you'd also get interest on your reinvested earnings (this is called compounding interest). Over five years, that would lead to a $16 248.97 return in total. I talk more about compounding interest in Foundation 3.

Earnings are not that insignificant at all really, when you look at it like that. I'm sure you could do a lot with $16 000.

Why are earnings important?

Earnings are important for two reasons: